Econ Exam 2 (quizzes 4-6)

If the Federal Reserve wishes to increase the money supply, it should: A) decrease the discount rate B) increase interest paid on reserves C) sell government bonds D) decrease the monetary base

decrease the discount rate

In a small open economy, if exports equal $5 billion and imports equal $7 billion, then there is a trade ______ and ______ net capital outflow. deficit; negative surplus; negative deficit; positive surplus; positive

deficit; negative

In a small open economy, if exports equal $20 billion, imports equal $30 billion, and domestic national saving equals $25 billion, then net capital outflow equals: -$25 billion. -$10 billion. $10 billion. $25 billion.

-$10 billion.

If the real return on government bonds is 3 percent and the expected rate of inflation is 4 percent, then the cost of holding money is ______ percent. 1 3 4 7

7

If the monetary base equals $400 billion and the money multiplier equals 2, then the money supply equals: 200 billion 400 billion 800 billion 1,000 billion

800 billion

Open-market operations change the _____; changes in interest rate paid on reserve change the______; and changes in the discount rate change the_______. A) monetary base; monetary base; monetary base B) money multiplier; money multiplier; money multiplier C) monetary base; money multiplier; monetary base D) money multiplier, monetary base, money multiplier

monetary base; money multiplier; monetary base

If the federal reserve increases the interest rate paid on reserves, banks will tend to hold_____ excess reserves, which will______ the money multiplayer. A) more; increase B) more; decrease C) fewer; increase D) fewer; decrease

more; decrease

The concept of monetary neutrality in the classical model means that an increase in the money supply growth rate will increase: - real GDP. - real interest rates. - nominal interest rates. - both saving and investment by the same amount.

nominal interest rates

If purchasing-power parity holds, then changes in domestic saving will _____ the real exchange rate. - increase - decrease - not change - either increase or decrease

- not change

Which of the following would decrease the real exchange rate in a small open economy? - a personal income tax cut - a reduction in government spending - a tariff on imports - an increase in investment

- a reduction in government spending

An effective policy to reduce a trade deficit in a small open economy would be to: - increase tariffs on imports. - impose stricter quotas on imported goods. - increase government spending. - increase taxes.

- increase taxes.

Starting from a trade balance, if the world interest rate falls, then, holding other factors constant, in a small open economy the amount of domestic investment will _____, and net exports will _____. - increase; increase - increase; decrease - increase; not change - decrease; increase

- increase; decrease

In a small open economy, if the world interest rate falls, then domestic investment will _____, and the real exchange rate will _____, holding all else constant. - decrease; decrease - decrease; increase - increase; decrease - increase; increase

- increase; increase

In a small open economy with perfect capital mobility, a reduction in the government's budget deficit ______ net exports, and the real exchange rate ______. - increases; appreciates - increases; depreciates - decreases; appreciates - decreases; depreciates

- increases; depreciates

A depreciation of the real exchange rate in a small open economy could be the result of: - a domestic tax cut. - an increase in government spending. - a decrease in the world interest rate. - the expiration of an investment tax-credit provision

- the expiration of an investment tax-credit provision

Assume that some large foreign countries decide to subsidize investment by instituting an investment tax credit. Then a small country's real exchange rate: - will fall, and its net exports will rise. - will rise, and its net exports will fall. - and net exports will both fall. - and net exports will both rise

- will fall, and its net exports will rise.

If the real exchange rate between the United States and Japan remains unchanged, and the inflation rate in the United States is 6 percent and the inflation rate in Japan is 3 percent, the: - dollar will appreciate by 3 percent against the yen. - yen will appreciate by 3 percent against the dollar. - yen will appreciate by 6 percent against the dollar. - yen will appreciate by 9 percent against the dollar.

- yen will appreciate by 3 percent against the dollar.

If the money supply increases 12% , velocity decreases 4%, and the price level increases 5%, then the change in real GDP must be_______% 3 4 9 11

3

If there are 100 transactions in a year and the average value of each transaction is $10, then if there is $200 of money in the economy, transactions velocity is ______ times per year. 0.2 2 5 10

5

According to the quantity theory of money, a 5% increase in money growth increases inflation by_____%. According to Fisher equation, a 5% increase in the rate of inflation increases the normal intrest rate by _____%. 1,5 5,1 1,1 5,5

5,5

If currency held by the public equals 100 billion, reserves held by the banks equal 50 billion, and bank deposits equal 500 billion, then the mone supply equals, 100 billion 150 billion 600 billion 650 billion

600 billion

Consider the money demand function that takes the form (M/P)d = kY, where M is the quantity of money, P is the price level, k is a constant, and Y is real output. If the money supply is growing at a 10 percent rate, real output is growing at a 3 percent rate, and k is constant, what is the average inflation rate in this economy? 3% 7% 10% 13%

7%

The money supply will decrease if the, - monetary base increases - currency-deposit ratio increases - discount rate decreases - reserve-deposit ratio decreases

currecny-deposit ratio increases

In a small open economy, starting from a position of balanced trade, if the government increases domestic government purchases, this produces a tendency toward a trade ______ and ______ net capital outflow. deficit; negative surplus; positive deficit; positive surplus; negative

deficit; negative

The demand for real money balances is generally assumed to: - be exogenous - be constant - increases as real income increases - decreases as real income increases

increase as real income increases

Inflation ______ the variability of relative prices and ______ the efficiency of the allocation of resources. - increases; increases - increases; decreases - decreases; decreases - decreases; increases

increases; decreases

According to the classical theory of money, reducing inflation will not make workers richer because firms will increase product prices ______ each year and give workers ______ raises. - more; larger - more; smaller - less; larger - less; smaller

less; smaller

If a U.S. corporation sells a product in Europe and uses the proceeds to purchase shares in a European corporation, then U.S. net exports ______, and net capital outflows ______. increase; increase increase; decrease decrease; increase decrease; decrease

increase; increase

If the real interest rate declines by 1% and the inflation rate increases by 2%, the nominal intrest rate implied by the Fisher equation. - increases by 2% - increases by 1% - remains constant - decreases by 1%

increases by 1%

In a small open economy, policies that increase: - investment tend to cause a trade surplus. - investment tend to cause a trade deficit. - saving do not affect the trade balance. - saving tend to cause a trade deficit.

investment tend to cause a trade deficit.

To end a hyperinflation, a government trying to reduce its reliance on seigniorage would: - print more money. - raise taxes and cut spending. - lower taxes and increase spending. - lower interest rates.

raise taxes and cut spending

Given that M/P=kY, when the demand for money parameter, k, is large, the velocity of money______, and money is changing hands _______ large, frequently large, infrequently small, frequently smll, infrequently

small, infrequently

If the nominal interest rates in the United States and Canada are 8 percent and 12 percent, respectively, the real interest rates are the same, and the real exchange rate is fixed, then the market's expectation about the number of Canadian dollars to be received for a U.S. dollar a year from now will be that it will: - decrease by 8 percent. - decrease by 4 percent. - increase by 4 percent. - increase by 5 percent

- increase by 4 percent.

If the currency-deposit ratio equals 0.5 and the reserve-deposit ratio equals 0.1, then the money multiplier equals: 0.6 1.67 2.0 2.5

2.5

A bank balance sheet consists of only the following items Deposits: 1000 Reserves: $100 Securities: $400 Bonds Issued: $500 Loans: $2000 What is the value of bank capital? -1000 +500 +1000 +1500

+1000

If currency held by the public equals 100 billion, reserves held by the banks equal 50 billion, and bank deposits equal 500 billion, then the monetary base equals. 50 billion 100 billion 150 billion 600 billion

150 billion

If the average price of goods and services in the economy equals $10 and the quantity of money in the economy equals $200,000, then real balances in the economy equal: 10 20,000 200,000 2,000,000

20,000

"Inflation tax" means that - as the price level rises, taxpayers are pushed to higher tax brackets. - as the price level rises, the real value of money held by the public decreases. - as taxes increase, the rate of inflation also increases. - in a hyperinflation, the chief source of tax revenue is often the printing of money.

as the price level rises, the value of money held by the public decreases

If the Fed announces that it will raise the money supply in the future but does not change the money supply today, - both the nominal interest and the current price level will decrease. - the nominal interest rate will increase and the current price level will decrease. - the nominal interest rate will decrease and the current price level will increase. - both the nominal interest rate and the current price level will increase.

both the nominal interest rate and the current price level will increase.

In the case of an unanticipated increase in inflation: - creditors with an unindexed contract are hurt because they get less than they expected in real terms. - creditors with an indexed contract gain because they get more than they contracted for in nominal terms. - debtors with an unindexed contract do not gain because they pay exactly what they contracted for in nominal terms. - debtors with an indexed contract are hurt because they pay more than they contracted for in nominal terms.

creditors with an unindexed contract are hurt because they get less than they expected in real terms.

When the Fed increases the discount rate, it; A) Increases the reserve to deposit ratio (rr) B) decreases the reserve to deposit ratio (rr) C) is likely to increase the monetary space (B) D) is likely to decrease the monetary space (B)

is likely to decrease the monetary space (B)

The quantitative easing operations conducted by the Federal Reserve between 2007 and 2011 resulted in______increases in the monetary base and_______ increases in money supply. A) no;no B) large;larger C) large; smaller D) small; smaller

large; smaller

When people want to hold______ money, the income velocity of money increases, and the money demand parameter k_______ more, increases less, increases more, deacreses less, decreases

less, decreases

The size of the monetary base is determined by - The Federal Reserve - The Federal Reserve and banks - Preferences of households about the form of money they wish to hold - Business policies of banks and the laws regulating banks

the Fedearl Reserve

Two ways for banks to borrow reserves from the Federal Reserve are through: A) the discount window and the Term Auction Facility. B) open-market operations and excess reserve swaps. C) decreasing the reserve-deposit ratio and decreasing the currency-deposit ratio. D) fractional-reserve banking and financial intermediation.

the discount window and the Term Auction Facility.

The adoption of an investment tax credit in a small open economy is likely to lead to: - no change in either domestic investment or domestic saving. - an increase in both domestic investment and domestic saving. - an increase in domestic saving but no change in domestic investment. - an increase in domestic investment but no change in domestic saving.

- an increase in domestic investment but no change in domestic saving.

If the real exchange rate depreciates from 1 Japanese good per U.S. good to 0.5 Japanese good per U.S. good, then U.S. exports ______, and U.S. imports ______. - increase; increase - decrease; decrease - increase; decrease - decrease; increase

- increase; decrease

When the Fed makes an open-market sale, it: - increases the money multiplyer - increases the currency-deposit ratio - increases the monetary base - decreases the monetary base

deacreases the monetary base

If the money supply is held constant, then an increase in the nominal intrest rate will, ______ the demand for money and _______ the price level. increase, increase increase, decrease decrease, increase decrease, decrease

decrease; increase

If inflation was 6 percent last year and a worker received a 4 percent nominal wage increase last year, then the worker's real wage: - increased 4 percent. - increased 2 percent. - decreased 2 percent. - decreased 6 percent.

decreased 2 percent.

In a Fractional-reserve banking system, banks create money when they, -accept deposits -make loans -hold reserves -exchange currency for deposits

make loans

In a small open economy, if domestic saving exceeds domestic investment, then the extra saving will be used to: - make loans to the domestic government. - make loans to foreigners. - repay the national debt. - repay loans to the Federal Reserve.

make loans to foreigners